The Delta Effect

When home prices increase in an area, the highest percentage increases happen for the lowest priced homes. The greatest demand in any market is for the most affordable homes. For example, 711 Nobility in South West Medford sold for $223,000 in December of 2015 and then sold again five years later in December of 2020 for $320,000. This is a 45% increase in just five years which is a higher percentage increase than homes selling at higher price points. The “Delta Effect” is the effect that makes is easier for owners of lower priced homes to upgrade and afford a higher priced home, sometimes upgrading without increasing their monthly mortgage cost.

The other major factor that affects home affordability is the interest rate. Most of us thought we had seen the end to the lowest interest rates since the great depression, but then came the pandemic and interest rates plunged again! As of January, 2021, the average 30-year fixed interest rate, per bankrate.com is 2.88%, which is an all-time low during my lifetime.

When you add these two factors together, the “Delta Effect” and all-time low interest rates, many buyers can upgrade and get a much nicer home without increasing their monthly mortgage payment. Let’s look at the numbers for an actual client of ours. She bought her first home in March of 2019 on Sharon Way in White city – a 2 bedroom, 2 bath, 922 square foot townhouse with a small backyard and a one-car garage for $190,000. Her loan covered 100% of the purchase price, with zero down, with an interest rate of 4.625%. She wants to know what she can spend on a new home without increasing her monthly mortgage payment. So, if she sold her home, used her equity and took advantage of the lower interest rate, what can she spend on a new home?

Recap of the Sharon Way purchase:
• $190,000 Purchase price
• $186,428 Current Balance of the loan
• 4.625% USDA 100% loan – Zero down
• $220,000 Current value of the property
• $986 Monthly mortgage payment

Recap of what she can purchase now with the same mostly mortgage:
• $220,000 current value of her home
• $33,500 Down Payment, derived from her home equity
• 2.88% Interest Rate
• $996 monthly mortgage – $240,000 financed at 2.88%
• $273,500 is her budget for a new home. $240,000 financed at 2.88% and $33,500 down payment coming from her equity.

With a budget of $273,500 she can move to a nicer neighborhood, afford a larger house with a larger backyard and hopefully a 2-car garage.

The Delta effect, low interest rates, and the loss of homes in Phoenix and Talent by fires have all caused the hottest sellers’ market in years. When she is ready to sell her townhome, she will most likely have multiple offers exceeding her $220,000 expectation. The lowest priced home listed for sale in White City is currently $259,000. Conversely, when she goes to buy her new home, she will have to keep in mind that she will have lots of competition and most likely have to give the seller more than they are asking for.

How could the Delta Effect impact you? Contact Us.

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The Delta Effect

When home prices increase in an area, the highest percentage increases happen for the lowest priced homes. The greatest demand in any market is for the most affordable homes. For example, 711 Nobility in South West Medford sold for $223,000 in December of 2015 and then sold again five years later in December of 2020 for $320,000. This is a 45% increase in just five years which is a higher percentage increase than homes selling at higher price points. The “Delta Effect” is the effect that makes is easier for owners of lower priced homes to upgrade and afford a higher priced home, sometimes upgrading without increasing their monthly mortgage cost.

The other major factor that affects home affordability is the interest rate. Most of us thought we had seen the end to the lowest interest rates since the great depression, but then came the pandemic and interest rates plunged again! As of January, 2021, the average 30-year fixed interest rate, per bankrate.com is 2.88%, which is an all-time low during my lifetime.

When you add these two factors together, the “Delta Effect” and all-time low interest rates, many buyers can upgrade and get a much nicer home without increasing their monthly mortgage payment. Let’s look at the numbers for an actual client of ours. She bought her first home in March of 2019 on Sharon Way in White city – a 2 bedroom, 2 bath, 922 square foot townhouse with a small backyard and a one-car garage for $190,000. Her loan covered 100% of the purchase price, with zero down, with an interest rate of 4.625%. She wants to know what she can spend on a new home without increasing her monthly mortgage payment. So, if she sold her home, used her equity and took advantage of the lower interest rate, what can she spend on a new home? 

Recap of the Sharon Way purchase: 
•    $190,000 Purchase price 
•    $186,428 Current Balance of the loan 
•    4.625% USDA 100% loan – Zero down 
•    $220,000  Current value of the property 
•    $986 Monthly mortgage payment 

Recap of what she can purchase now with the same mostly mortgage: 
•    $220,000 current value of her home
•    $33,500 Down Payment, derived from her home equity 
•    2.88% Interest Rate 
•    $996 monthly mortgage – $240,000 financed at 2.88%
•    $273,500 is her budget for a new home. $240,000 financed at 2.88% and $33,500 down payment coming from her equity.

With a budget of $273,500 she can move to a nicer neighborhood, afford a larger house with a larger backyard and hopefully a 2-car garage. 

The Delta effect, low interest rates, and the loss of homes in Phoenix and Talent by fires have all caused the hottest sellers’ market in years.  When she is ready to sell her townhome, she will most likely have multiple offers exceeding her $220,000 expectation. The lowest priced home listed for sale in White City is currently $259,000. Conversely, when she goes to buy her new home, she will have to keep in mind that she will have lots of competition and most likely have to give the seller more than they are asking for. 

How could the Delta Effect impact you? Contact Us.

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2021 Real Estate Forecast

2021 Real Estate Forecast

I just read over our 2020 Jackson County real estate forecast which we published in the Review a year ago. We predicted that in 2020 would see over 4,000 homes selling, with the median price surpassing the $300,000 mark. As I write this article, 2020 is about to end and it looks like we will meet and exceed both predictions. 2020 will mark the greatest year the housing market has ever seen in Jackson County despite social unrest, record destruction from fires, a contentious election year, and a pandemic that caused the shutdown, temporarily and permanently, of hundreds of local business, and the resulting recession which is more severe than most of us have lived through.

Where is the real estate market headed now? What happens following a record year, during arguably, the worst year? Will we see the market crash, hold, grow slightly or explode? Let’s look at the EIGHT trends that will determine the 2021 local real estate market.

Upsizing homes has become essential for many
The pandemic has created pent-up demand. Many buyers are in the market purely because they’re working and schooling from home and realizing their space is no longer big enough, particularly now that the temperature’s dropping so they can’t easily escape to their back patio to catch up on emails. Add to this the “Delta Effect” where younger families have purchased homes in the $200,000 – $300,000 price range that have seen the greatest price escalation. They can use this price escalation combined with low interest rates to upsize into a price category that has seen less price escalation. The “Delta Effect” means going from a first home that cost $300,000 to a second home that cost $500,000 has never been easier, financially speaking.

Working from home will increase the number of Escapees from large cities
As more and more employees are allowed to work from home rather than commuting to an office, they are realizing that they can move outside cities where their offices are located to smaller, more rural areas where their purchasing power is greater. Their employers are quickly learning they can reduce the cost on office space as well as they can give “cost of living” adjustments to employees moving to cheaper areas. Now that this trend has started, I don’t personally believe it can be reversed.

Growing numbers of retirees flee large cities for more rural locations
Southern Oregon has increased its draw for retirees, making them an important part of our housing industry. The number of Americans retiring daily has nearly doubled since 2000 and roughly 10,000 people turn 65 each day so this trend is not stopping anytime soon. You can see the effect of retirees on the city of Jacksonville that now has a population with an average age of 61 and continues to see retirees flocking in.

Mortgage interest rates are at an all-time low, again!
Interest rates on a 30-year fixed-rate loan were 2.8% as of Oct. 22, according to Freddie Mac. Although buyers are facing stiff competition, it’s not all bad news for them. Despite high home prices, record-low interest rates mean they’ll save a ton of money. Low interest rates boost buyer home purchasing power. Despite double-digit increases in home prices in 2020 compared to 2021, home buyers are likely actually paying slightly less on their mortgage each month, thanks to much lower mortgage rates. $15,000 Tax Credit to help more Americans achieve homeownership

One of Biden’s most popular plans is to provide first-time home buyers with a down payment tax credit of up to $15,000. As home prices have soared in recent years, this could be a big help to many cash-strapped buyers. The plan is to give first-time home buyers a down payment tax credit of up to $15,000 that they could actually use at the time of purchase. As home prices have soared in recent years, this could be a big help to many cash-strapped buyers.

Demand from fire victims
We have seen so many home buyers that are victims of the Almeda Fire enter the housing market in the 4th quarter of 2020. Because inventory is so low, we believe it will take a long time for all those homeowners to find a replacement home. Some of that demand will spill into 2021 causing increasing demand in 2021.
Housing inventory is getting lower

Although buyers are plentiful, the number of homes for sale keeps getting lower each quarter. We have personally seen up to 17 offers per home on homes priced in the mid $200,000 range and it’s not unusual to have multiple offers on homes priced in the $300,000 range and even multiple offers for homes in the $500,000 range. Because the number of homes available is currently at a record low, (less than a month’s supply) even if we see some improvement, which we expect, there will still be relatively few homes for sale in 2021 and not enough to meet demand. Some sellers are hesitant to sell unless they are sure they can find a replacement home.

Development of a Vaccine
We recently received the news that a COVID-19 vaccine being developed by Pfizer prevented more than 90% of infections in a study of tens of thousands of volunteers. This is the most encouraging scientific advance so far in the battle against the coronavirus and more encouraging news is likely to be on its way. When the coronavirus is behind us, we’ll see our economy improve, not for everyone, but for many of us, and an improved economy will cause more demand in the housing industry.

Conclusion
Demand for homes in Jackson County has never been higher, and when combined with record low Interest rates, and maybe a $15,000 federal stimulus, there is only one obvious issue that can stop 2021 for becoming another record year and that’s supply. How many homes we sell will be contingent upon the inventory of homes that comes on the market for sale. There is one thing we know for certain, low inventory and high demand will drive up home prices in 2021 so sellers stand to make a killing.

Have questions about how you will be affected by the 2021 market? 

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Homes, Homes, We Need Homes!

The U.S. economy is a mess. The continuing coronavirus pandemic has led to scores of business closures, the worst unemployment since the Great Depression and the steepest economic contraction on record.

Yet, despite it all, the U.S. housing market has been spared and is experiencing a record year. In our valley, well, it can only be described as “hot” and the best real estate market since 2005 for sellers. Cooped-up buyers are seeking larger homes, first time home buyers want to cash in on record-low mortgage interest rates, and escapees are fleeing large metropolitan areas with the newly given option of working from home. They are all battling it out over a very limited supply of properties for sale or for rent in our valley.

Because of the demand, home sales and home prices are both on the rise. Homes sales in Jackson County grew by 9% for the 3rd quarter with 381 homes selling per month. Home prices increased by 11.3% in the same quarter, bringing a total increase in home prices to 42.4% since 2015. However, inventory dropped 64% over last year and we are down to 342 homes for sale, which is less than a month’s supply. We are experiencing the highest demand combined with the lowest inventory in the 18 years that I have been a Realtor. On the rental side, we have seen vacancy rates lower than 1% throughout the year.

In the midst of this record demand and low supply, we experienced the most devastating fires in our recent history – the Almeda and Obenchain fires, which destroyed well over 2,000 homes. So, now our valley desperately needs homes for fire victims as well as retirees, escapees and for those who seek to downsize or upsize. Every week our property management department gets scores of calls for rental housing and we have very little available. On the sales side, we watch buyers pounce on every home that becomes available. Some homes, especially under $350,000, are getting as many as 8 to 10 offers, so one buyer gets the home and 9 buyers lose out. Our valley desperately needs more homes for sale and more homes for rent to keep up with the demand on both.

It may take years to catch up to the housing demand but we can start today and we can all help. Expert Properties is helping by waiving six months of management fees for any owner that has an empty cottage, ADU, or vacant home that we can rent out. In addition, we are donating $1,000 per listing sold to local charities helping fire victims. If we all chip in, we can help our valley heal. Details of these promotions are printed on the back page of this publication.

Another encouraging change is that we are seeing our cities increase the number of acres that are zoned for Multi-Family Residential (MFR), allowing more homes to be built on one lot. This will increase the number of duplexes, triplexes and townhomes being built and accommodate more families in need of housing.

In a similar move, the City of Grants Pass is now allowing two Auxiliary Dwelling Units (ADUs) to be built on each city lot, provided there is space and you meet all the requirements. To help lower the cost of these ADUs, the city planning department has posted pre-approved ADU plans on their website that can help you get started. There has also been a lot of talk in the Oregon State congress to allow one ADU to be built on each rural lot located in our counties. To my knowledge, this is still in the talking stages.

With demand for homes booming and supplies dwindling we face a major shortage in homes for sale and for rent. Government needs to do their part by reducing restrictions and speeding up building approvals. We can do our part by renting our vacant homes, ADUs, cottages not in use and donating what we can to rebuild homes lost to the fires that were uninsured or underinsured. If we all work together, we can increase the supply of homes, help those who lost theirs, and continue to see our valley prosper.

If you'd like more information about listing your home, contact us.

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Almeda Fire Relief

If you have a property available in Southern Oregon, or want more information on listing your home for sale, please call a phone number above or contact us.

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When is the Best Time to Sell?

In Southern Oregon, you hear a lot about a summer selling season for real estate. Or you hear it’s best to list your home in the winter when there is less competition. Both statements have a ring of truth, but there is a lot more behind the numbers.

The year generally starts out slow, and you can see below that last year, 718 existing homes sold in the first quarter, taking an average of 51 days to sell. (Interesting note, 2020 has started with less than 800 existing homes for sale). It is true there wasn’t much for sale in the first quarter. You can see below that we averaged less than 1,000 homes for sale but low inventory didn’t help sellers or buyers. Even with low inventory, only 24% of the homes sold, taking an average of 51 days to sell.

Then comes spring and summer when the majority of sellers list their home, and the buyers have the greatest selection. Many sellers don’t want to list their homes until the grass turns green, the blossoms bloom and the sun comes out to stay. By far, we have our greatest selection in spring and summer, which is good for buyers, and we have the most buyers which is good for sellers. You can see that over 1,100 homes sold in both spring and summer and buyers had over 1200 homes to choose from. Bottom line, about 30% of all homes for sale in spring and summer sold, and they sold, on average, in 43 days.  

Lastly, fall rolls around and a lot of homes that were for sale, have sold. We still have a large number of buyers but the buyers have less homes for sale to choose from. Last year, existing homes for sale dropped to 783 by December, and a record 37% of them sold in about 48 days! For buyers, there isn’t much selection, but for sellers, Fall is when sellers have the greatest chance to sell their house. 

Being that the largest percentage of homes that are listed sell in the 4th quarter, you might think that fall is the best time to list your home for sale. That’s true, but, there is one more equation.  The price of the home being listed is a huge factor in determining how long it will need to be on the market before finding the right buyer. If a home is over $500,000 or $600,000, the average number of times you need to show your home before you find the right buyer is huge. Southern Oregon is a small area and we have a thriving real estate market, but higher end homes are a niche and it takes time to find the right buyer. In Jacksonville and Ashland, it takes over 26 showings before you get an offer. This is because homes in Jacksonville and Ashland average well over $400,000 where the buyers are limited. In many cases, it takes six to eight months to find the right buyer and it will take six to eight months before you have 26 interested buyers. 

So Fall is the best time to sell your house with the least amount of competition and the most amount of buyers per listed home, but do remember if your home is over $500,000 or $600,000 it still may take a lot of showing before it sells. 

Have questions about the best time to sell? Let us know:

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